Charity Care Provision by US Nonprofit Hospitals

Abstract

This ecenomic evaluation study analyzes the share of overall net income and charity care for hospitals based on overall net income in 2017.

Hospitals are eligible for nonprofit status, which exempts them from income, property, and sales taxes, in exchange for providing charity care and other community services.^1,2,3,4,5 Importantly, charity care differs fundamentally from uncompensated care or bad debt because there is no expectation that patients will pay for the services.^3,4,6 Based on each hospital’s financial assistance policy, charity care is offered to eligible uninsured patients as full or partial discount of medical bills and to eligible insured patients as deductible and coinsurance written off.⁶ The existing literature, however, has not made the important distinction between charity care for uninsured patients and insured patients or examined charity care provision across hospitals’ financial status. This study aims to fill these knowledge gaps.

Methods

We used the 2017 Medicare cost reports published by the Centers for Medicare & Medicaid Services, the only publicly available data source containing charity care information for uninsured and insured patients (ie, deductibles and coinsurance written off) separately. All Medicare-certified hospitals must file cost reports annually. We excluded 47 hospitals that reported missing net patient revenue. The final sample included 2563 nonprofit short-term general hospitals. The amount of charity care was measured as the cost of the services—the charges for the services, multiplied by the hospital’s cost-to-charge ratio, minus any partial payments.

We analyzed the share of overall net income (ie, total net income generated from patient and nonpatient services) and charity care across hospital quartiles and for hospitals in the top 1% and 5% based on their overall net income in 2017. For each group, we also compared its aggregated charity care and overall net income. We repeated analyses stratified by state implementation of Medicaid expansion by the end of 2017. The Johns Hopkins institutional review board determined that this study was exempt and the study design obviated the need for consent procedures. Data were analyzed between August and December 2019.

Results

In 2017, US nonprofit hospitals generated $47.9 billion overall net income and provided $9.7 billion of charity care to uninsured patients and $4.5 billion of charity care to insured patients. The top quartile of hospitals generated all (100.2%) of total overall net income (the remaining hospitals had net losses in aggregation) and provided more than half—57.3% (uninsured) and 54.6% (insured)—of total charity care. In contrast, the bottom quartile of hospitals incurred losses equivalent to 15.8% of total overall net income, while providing 17.1% (uninsured) and 17.7% (insured) of total charity care (Figure 1).

Figure 1. Share of Overall Net Income and Charity Care Across 2563 Nonprofit US Hospitals in 2017, Stratified by Overall Net Income.

Hospitals were ranked according to their overall net income. Top 1%, top 5%, 1st quartile, 2nd quartile, 3rd quartile, and 4th quartile represented hospitals ranked among the 1st to 26th, 1st to 128th, 1st to 640th, 641st to 1281st, 1282nd to 1922nd, and 1923rd to 2563rd, respectively. The percentages on the y-axis represent the share of the aggregated value in a given group among the aggregated value across all 2563 hospitals.

The amounts of charity care relative to overall net income were smaller for hospitals with larger overall net income. The top quartile of hospitals provided $11.5 (uninsured) and $5.1 (insured) charity care for every $100 of their overall net income; the third quartile of hospitals provided $72.3 (uninsured) and $40.9 (insured) for every $100 of their overall net income (Figure 2).

Figure 2. Comparison of Charity Care and Overall Net Income Across 2563 Nonprofit US Hospitals in 2017, Stratified by Overall Net Income.

Hospitals were ranked according to their overall net income. Top 1%, top 5%, 1st quartile, 2nd quartile, 3rd quartile, and 4th quartile represented hospitals ranked among the 1st to 26th, 1st to 128th, 1st to 640th, 641st to 1281st, 1282nd to 1,922nd, and 1923rd to 2563rd, respectively. The percentages on the y-axis represent the aggregated charity care vs the aggregated overall net income in a given group.

In analyses stratified by state Medicaid expansion, the results illustrated in Figure 1 remained very similar, whereas those in Figure 2 were qualitatively consistent, but hospitals in states that expanded Medicaid provided substantially less total charity care than other hospitals—$12.0 vs $37.8 (uninsured) and $8.7 vs $11.0 (insured) for every $100 of overall net income.

Discussion

For both insured and uninsured patients, nonprofit hospitals with superior financial performance provided disproportionately low levels of charity care. Hospitals in states that expanded Medicaid provided less charity care than hospitals in other states. This study was limited by potential data inaccuracies of Medicare cost reports, self-reported by hospitals and not required to be audited by accounting firms.

Under the current legal and regulatory requirements in the Affordable Care Act, Internal Revenue Code, and state laws, nonprofit hospitals have discretion in designing their own financial assistance policies for uninsured and underinsured patients. Nonprofit hospitals with substantial financial strength should consider more generous financial assistance eligibility criteria to reduce the financial risk exposure of disadvantaged uninsured and underinsured patients.